Euroskeptics advance, yet practical results limited

Opinion: One positive outcome will be a weaker euro

People watch a board displaying provisional results of the European Parliament election in Brussels on Sunday.

LONDON (MarketWatch) — It was the night that everything changed for the parliamentary body charged with marshalling political action across the fragmented edifice of the 28-nation European Union. And yet, the morning after, with the immediate practical effects very limited, everything remains the same.

The rampage across Europe of radical parties of the right and left, all hotly opposed to the European Union’s tough stance on economic rigor and liberal leanings on political and social integration, was “a shock, an earthquake”, to use the much-repeated words of Manuel Valls, the French prime minister. Read more about the election results.

The EU-wide election results declared on Sunday evening will drive orthodox financial policies further off course. In austerity-hit Europe, the outcome will complicate the continent’s ambitious project of linking up banking systems in different countries into a so-called banking union to help repair some of the damage of the euro crisis.

Reuters

Marine Le Pen leads France's National Front political party to its first victory in a national election.

“Go for growth” policies will become more popular as a means of curbing widespread unemployment — even though Europe manifestly lacks the money to pay for them. Divisions between creditor and debtor countries will likely widen further as argument sharpens about who will pick up the bill.

The polling outcome will have at least one salutary effect by damping upward pressure on the euro
EURUSD, -0.0339%
, which at recent highs above $1.38 (now down to around $1.36) has been far too strong on the foreign exchanges in recent months. This has been compounding the euro area’s problem of too-low inflation, and damaging growth by harming export prospects.

The backlash against mainstream parties will have psychological repercussions on financial markets similar to those surrounding the planned European Central Bank interest rate cut on June 5 to zero for its main lending rate and minus 0.25% for deposit rates.

Despite the setback to establishment parties, pro-European politicians in the 751-seat European legislature remain firmly in the majority. The results will take months to feed through to the workings of the Parliament and the European Commission, which will be re-established with new members in the late autumn.

Many of the smaller, disparate left- and right-wing parties that swept to victory in polling across Europe are disgruntled novices whose members will find organizing any kind of cooperation highly difficult. So one plausible outcome is that the big center-right and center-left parties in the Parliament will form a coalition-like bloc to drive through existing plans for more European integration — more or less ignoring the message of the polls.

Jean-Claude Juncker, the former Luxembourg prime minister, who led the campaign for the conservative EPP grouping in the Parliament, and now the favorite to head the Commission, indicated that less would change than many might think (or wish). He insisted the majority of people had voted to be part of Europe. “The extreme right, contrary to what some of the media has said, did not win this election,” he said.

The EPP caucus looks set to win 211 seats, down from 274 won in the last election in 2009, but enough to remain the largest group. Supporters of European integration will be comforted by the relatively high turnout among the 400 million eligible, narrowly up from 2009, at 43.1%.

The biggest upsets came in France and the U.K. (not part of the 18-member euro), where anti-EU parties finished in first place. But there was some reassurance for the integrationists as anti-European groups fared less well than expected in Italy and the Netherlands. Highlights were:

• In France the far-right National Front won a nationwide election for the first time, with 25% of the vote, giving it 25 seats, a clear win over the opposition center-right UMP with 21%. President François Hollande’s ruling Socialists finished a poor third with 14%, their lowest-ever European Parliament score.

• Britain saw the euroskeptic UKIP in first place with 27%, beating both Conservatives and Labour. The Greens outstripped the Liberal Democrats (junior partner in the governing coalition with Prime Minister David Cameron’s Conservatives) into fifth place. This was the first national election in 100 years won by a party other than the Conservatives or Labour.

• In Europe’s largest economy, Germany, Chancellor Angela Merkel confirmed her hold over the center-ground, winning 35% for the Christian Union parties united under her wing, ahead of 27% for the center-left Social Democrats. The anti-euro Alternative für Deutschland (AfD) scored a strong 7%, equal to the best result predicted by opinion polls, winning parliamentary representation for the first time, just a year after being founded on a wave of skepticism about the single currency in Europe’s economic heartland.

• In Italy, the third biggest economy in the euro area after Germany and France, center-left Prime Minister Matteo Renzi did better than expected, according to exit polls, fending off a challenge from ex-comic Beppe Grillo’s anti-establishment Five Star, which appeared to finish second.

• In Greece partial results showed the far-left anti-austerity Syriza topping the polls with 26%, against Prime Minister Antonis Samaras’ New Democracy on 23%. Far-right Golden Dawn looked set to get three MEPs, with 9%.

• The right-wing anti-immigration party in the Netherlands, Gurt Wilders’ Freedom Party, was a surprise failure, winning just 12% of the vote and three seats, compared with 17% in 2009.

• The anti-immigration and anti-EU Danish People’s Party won its country’s election, gaining 27% of the vote and four of Denmark’s 13 seats.

• Austria’s far-right Freedom Party advanced to take 20% of the vote with an anti-immigrant campaign that called for a cut in EU contributions and a referendum on the EU’s help for debtor countries.

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